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Monday, 30 November 2009

Compare Equity Investments Vs Mutual Funds

A mutual fund is an investment company that pools the varied resources of more than one individual together and invests this money according to a prospectus that contains the general financial goals of the funds members. Each MF is different. Some funds specialize in certain types of investments only, like stocks or bonds, or currency. Other funds spread out investor's money across a broad range of different types of investments to offer their investors more security by diversifying.

Mutual funds are tradable securities and can be bought and sold freely, at the current value of the securities invested in. The money invested belongs to each individual investor and that investor can withdraw from the fund at any time.

Equity investments are different. Private equity is an asset class the contains equity securities that cannot be publicly traded. These usually come from private money that either invests in the company or acquires it outright. The term equity investment can mean other things in other nations. When private equity is needed it comes mostly from institutional investors.

There are several different types of private equity described below:

• Leveraged buyouts or LBO's are essentially buyouts in with the leveraged company sells control of the company and its assets.

• Venture capital refers to investments in younger companies, usually in new technologies, new marketing concepts, or new products. Usually subdivided in the age of the companies that it invests in, venture capital likes to work with start-up companies more than it does established ones.

• Growth capital equity investments are usually minority investments in older companies that need capital to either restructure or expand operations.

• Secondary investments are made in existing private equity assets to shore up and strengthen the original investment.

There are many other investment strategies that can be considered private equity investments. A real estate purchase from a distressed seller can be seen as a leveraged buyout. Investments in different publics' works projects are often part of a privatization initiative on the part of the government.

So then, these type investments are generally non -publicly tradable securities that usually involve private cash.

In both cases the amount of risk each investor incurs depends on the type of investment. Obviously someone investing with venture capital will be at higher risk then someone investing in a LBO of an established company that operates in a safe sector.